Defiance ETFs has filed with the Securities and Exchange Commission (SEC) to launch 16 new 2x-leveraged funds that will reset hourly. Unlike existing leveraged ETFs that rebalance daily, these new funds propose six "intraday execution periods." This strategy appears to be an attempt to work within the SEC's current 2x leverage limit for new funds while still offering enhanced, short-term trading opportunities.
These funds will focus on highly volatile single stocks such as SpaceX, Meta, and Palantir, and are designed for experienced day traders who actively manage their positions. Experts warn that the hourly resets will amplify compounding risk and require traders to enter and exit positions very quickly to avoid significant losses, as intraday volatility is often higher than close-to-close volatility. Benjamin Schiffrin, director of securities policy for Better Markets, commented that this approach is "risky, if not riskier, than an ETF that is 5x leveraged but in a different wrapper," suggesting it's a way to circumvent SEC concerns about higher leverage.
The broader leveraged ETF market has seen significant activity. The semiconductor sector has been particularly hot for intraday strategies, returning about 8.1% from April to June with a 2.5 Sharpe ratio. Despite some leveraged funds experiencing a drawdown and a reduction in assets under management from a June peak by about $70 billion, interest in intraday trend strategies remains strong. JPMorgan Chase & Co. strategists noted "stellar" returns for intraday momentum trades using five-minute intervals, reminiscent of the 1998/99 tech boom. However, many leveraged funds have shown poor long-term performance, with a median return of -38% over four years, and a median trading volume of 22%, indicating investors often hold them longer than intended.
